CSNC EXCLUSIVE: Planning for succession success
Family businesses are a major driver for the Canadian economy, accounting for more than 63% of all private sector firms and generating close to $574 million, according to Family Enterprise. In the convenience and gas industries, many businesses are family owned and operated.
Running a successful enterprise with loved ones can be fulfilling yet challenging, especially when ensuring a smooth transition to the next generation taking the helm. With more than 60% of family businesses across Canada set to change hands in the next 10 years, the time to create a succession roadmap is now. Here’s how to set your organization up for success.
Build the right team
It’s common for c-store owners to keep everything—from processes to vendor lists—in their heads, says wealth and estate planner Jason Nagel, CFP, founder of Three60 Wealth in Calgary.
“The biggest mistake family business owners make is thinking no one else can do it like them so they must do it all. That creates a massive problem, because often, others can do it better, so you must be able and willing to let go of the reins to allow this succession to take place,” explains Nagel.
That means putting financial and experts in place who can help you achieve your objectives, adds Nagel, citing a client whose revenues and profitability soared after a business consultant helped him create an efficient management structure.
“We were then able to transition him out of his business for a much bigger value than what he would’ve got otherwise, simply because the business wasn’t revolved around him; it was now revolving around other people that would stay with the business,” says Nagel.
Evolve from being a jack-of-all-trades to a proactive leader
Erick Beauséjour began working in his family’s northern Quebec company, Groupe Beauséjour, at age 13. His parents, Raymond and Colette, started the company in 1971 and by the time Beauséjour turned 17, he was a full-time employee.
“My parents always took part of the winters off, and that evolved over time to them being less and less present, but there was no formal transition,” recalls Beauséjour, whose c-stores, gas stations, car washes, ready-to-eat operations and a manufacturing site are based in the Val d'Or and Rouyn-Noranda regions.
“When I was 17, we had about 15 employees and you couldn't afford to have an accountant or other help; everything was done in-house. Now, depending on the season, we're between 150 and 175; so much has changed over the course of my career.”
One major difference? Beauséjour began succession planning three years ago.
“I don't plan on working 50-plus hours a week until I'm 60, so I got some professionals involved. We've been working on a program to get some key staff involved in our management courses, and in our business,” he explains.
“I’m not sure if my daughter or son want to take over down the road, and even if they do, they'll need excellent communication, counselling and financial planning.”
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Defining clear roles and realistic timelines also top Beauséjour’s list.
“Know what you want to achieve and how much time you think it will take to hit those marks,” he says.
“I've been working on something for the past year that I thought would take me a couple of months. Everything takes a long time.”
Leave room for future innovation
Even parents whose children worked at the c-store from a young age need systems in place for the next generation, notes Nagel.
“You want to have all processes documented—what you do and why you’re doing it,” he suggests.
“That’s important because then the parent can teach it to the kids so that over a period of years, they learn how everything works. The other value of documenting is that the kids may have a different perspective and may want to tweak and ideally improve what Dad or Mom had built.”
That was the case for Brent Morris, president of Gas King Oil in Lethbridge, Alta. Morris’ father Don had been in the bulk fuel business before the two launched their own company in 1985.
“We got along but had differing views of how we wanted to operate the business,” recalls Morris.
“My dad wasn't interested in branding or fixing up the stores, but I wanted to renovate them and come up with a nice logo.”
In 1991, Don was diagnosed with brain cancer; he passed away the following year.
“I was running gas, my brother Kevin was running the bulk fuel business, and my mom owned both companies when my dad passed away. He was only 62 and we were all thinking, ‘What do we do?’” recalls Morris.
“We didn't really have a succession plan so we just kind of managed, and it went well. Kevin and I kept the businesses, and in 2000 my mom retired, so we paid her off over several years.”
Today, Morris’ son Zachary works in the family business, and he intends to have a clearer succession plan.
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“I’d advise owners to start early, find out if your child is interested in the business, and let them work for a while to gauge how they're doing. If they're still interested, talk to your accountant and lawyers,” he suggests.
“We're in the process of doing that now. My son is just an employee, but over time, we might set up a trust.”
Power through common hurdles
In the 24/7 convenience and gas world, there’s rarely any down time to put towards future planning. However, carving out time is essential, Nagel warns. Otherwise, important decisions are made in times of upheaval such as the illness or death of the owner.
“Often, owners are so busy and overwhelmed with all the moving parts of the business they just think, ‘I don’t have time for this. I’ll deal with it later’, but later ends up being three, four, or five years later,” he explains.
“If Dad passes away, it thrusts Mom and kids into the position to now run this business. If they’re not equipped, this creates a lot of stress and huge financial pressure, and can result in a company going bankrupt, or getting a lot less value from a sale than if Dad had taken the appropriate steps to have a plan in place.”
Evaluate the difference between ownership and employment
Nagel often sees parents struggle to determine whether their children are qualified to take over the business.
“You can transition ownership to the kids, but that doesn’t mean you have to transition employment,” he says.
“What if the kids aren’t well-suited to be president of the company? Should you hire someone outside the family to be president while your child still owns the shares? It’s hard to say to ‘you’re not the right fit’; that’s why working with a facilitator can be helpful in overcoming the emotional side.”
Conversely, parents may draft a succession plan for their children when the best move is to sell the business outright, adds Nagel.
“This business is the parents’ dream and might not be their kids’ dream,” he explains.
“If Mom and Dad would’ve sold it and used the proceeds to help their kids fund another venture near and dear to them, maybe the family unit would’ve been much more successful. Don’t force kids to get involved because you didn’t look at any other alternatives.”
Four generations of family pride
Dave Scholtens, CEO of Scholtens Inc., which owns the Cottage Country Candy brand in Burlington, Ont., has three previous generations’ worth of expertise to tap. His family has been in the confectionery space since 1910, when his great-grandfather sold licorice door-to-door in the Netherlands. Today, the company imports, packages and distributes candies, nuts and trail mixes to about 20,000 retail locations across Canada.
“As a family, we've evolved to where we understand how successions should work and how the new owners should view ownership of the business. It's less about position and authority and more about being a steward and an ambassador for the business,” explains Scholtens, who runs the company with his brother Zack.
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“Thankfully, my father was very mindful that succession be done properly, so in 2015, he engaged a third-party company, Christian Stewardship Services, that counsels you through a succession with recorded meetings and mediators. Their goal is to keep the personal relationship intact while the company management executive team completely changes.”
Scholtens notes that transitions can go sideways if things aren’t handled in a deliberate, documented fashion.
“We kept extensive notes and written agreements, shook hands, and now we can still enjoy dinner with each other because everything is above board. Our personal relationships are more valuable than the company’s success,” he adds.
Scholten’s father remains part of the business advisory council, while the brothers run day-to-day operations.
“I'm not going to say it's not a rocky road at times, and we sometimes debate best practices, ideas and solutions, but he tries to let us live and die by our own decisions. And ultimately, we all have the same goal: the health and well-being of our team members and our business. And if we keep that as our main goal, then it's basically for the well-being of the business,” he says.
Scholten continues to learn 10 years after the brothers took over. He advises families to think beyond their own abilities.
“Be honest about your own strengths and weaknesses, because an organization is much more than one person. Surround yourself with smarter people than yourself and amazing things will happen,” he says.